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- 1. (C) SUMMARYWith concerns growing that it is being out-maneuvered, the Government of Romania (GOR) has stepped up its energy diplomacy over recent weeks in an effort to parry perceived advances for Russia's "South Stream" natural gas pipeline project. While neighboring countries rushed to conclude agreements with Gazprom, Romanian emissaries met with officials in Ashgabat to promote shipments of Turkmen gas westward via the Caucasus, Bucharest played host to Turkey's President Abdulah Gul and the Emir of Qatar, and Romania signed an energy cooperation agreement with Azerbaijan. Romania has been a steadfast proponent of the Nabucco gas pipeline and a Southern Corridor Strategy to bring Caspian Basin gas to Europe by means of a route independent of Russia. However, South Stream's recent public relations successes have produced varying reactions among the Romanian political elite. President Traian Basescu and Prime Minister Calin Popescu-Tariceanu have redoubled their efforts to promote diversification of supplies, while devoting greater attention to complementary projects such as an LNG facility at Constanta (see reftel A). Others, including Minister of Economy and Finance Varujan Vosganian and the opposition PSD's Ovidiu Sincai Social Democratic Institute, have expressed fears that Romania is in an increasingly isolated position and should pursue stronger relations with Russia.

- 2. (C) END SUMMARY. ENERGY DIPLOMACY IN CENTRAL ASIAViorel Palasca, Romania's State Secretary for Energy at the Ministry of Economy and Finance (MEF), led an official delegation to Ashgabat February 18-22 with the goal of gauging Turkmenistan's readiness to supply natural gas to Europe. Palasca met with Turkmen Deputy Prime Minister and Minister of Foreign Affairs Rashid Meredov, Minister of Industry and Energy Saparmurad Nuriyev, and other officials. While the Turkmen continued to state that their national policy is to sell gas at the border, they did make clear that Turkmenistan has additional gas reserves to export above its current contracted amounts. In a post-trip readout with econoffs February 29, Palasca shared his impression that, once the Nabucco project shows concrete progress, Turkmenistan might reconsider its policy and sell natural gas to the EU at market prices rather than to Russia at the current $130 per 1,000 cubic meters. Palasca stressed to the Turkmen that, by supplying gas to Nabucco, Turkmenistan could become an important commercial partner to the EU. 3. (C) Following up on a January 23 discussion with USTDA's Dan Stein, Palasca encouraged the Turkmen to work with Azerbaijan to construct a short under-sea connection from its offshore fields to Azerbaijan's own network, sidestepping the debate over littoral states' rights. Palasca reported that Turkmen officials took note of his suggestion, but did not respond substantively.

- 4. (C) ROMANIAN LEADERSHIP LOBBIES TURKS Shortly after Palasca's trip, Bucharest played host the first week of March to a visit by Turkish President Abdullah Gul, who met with both the President and Prime Minister. PM Tariceanu, who devoted more than half the meeting to energy issues, assured Gul of Romania's strong support for Turkey's desire to join the European Union. According to a senior PM advisor who was present and who characterized the meeting to emboffs, the GOR feels it is making progress in its energy relationship with Turkey, and that Romania's consistent support for Turkey's aspirations in Brussels is a key component of that strategy. BUCHAREST 00000216 002 OF 004 5. (C) Tariceanu stressed the importance of the Nabucco pipeline project to Romania and urged Turkey to conclude an agreement with Azerbaijan on transit issues. Romania has been a proponent of expanding the Nabucco consortium. According to the PM's advisor, the PM encouraged Turkey to seriously entertain Gaz de France's hopes to join the project as a seventh partner, reinforcing a sentiment last raised during French President Nicholas Sarkozy's early-February visit. Tariceanu picked up on the Embassy's points, conveyed in a February 14 meeting with the Ambassador, to urge Gul to find a political solution to Azeri gas transit issues lest a deal be delayed by more narrow-minded commercial interests. Gul responded by underlining Turkey's dedication to the project, but was non-committal as to reaching a political decision with Azeri President Ilham Alyiev on gas transit. 6. (C) Tariceanu then raised Romania's plans to develop the Black Sea port of Constanta as an important regional commercial hub, including a proposed LNG terminal within the port facilities. Gul responded that LNG shipments should not be a problem, particularly for Romanian-flagged vessels, but noted that the straits were highly congested already. According to the advisor, Gul seemed favorably inclined to a positive-discrimination approach towards Romanian LNG shipments and the development of Constanta. He further suggested the re-institution of an Istanbul-Constanta container line that would feed into the Danube transportation network. The PM and Gul had a significant discussion on the undersea Romania-Turkey electricity cable under development by Switzerland's ABB. The GOR sees this project as the leading edge of an improved energy relationship with Turkey. Gul promised to complete necessary legislative changes to PPP regulations to make the project possible (NB. The PM's advisor told econoff that Gul had not been prepared for the LNG question, as Tariceanu decided to raise it after the two sides had exchanged their discussion topics. He noted with satisfaction that this was the first time the PM had identified and asserted Romania's specific economic and development interests with Turkey, and that the reception was positive.)

- 7. (C) GOR PURSUING DEEPER TIES WITH AZERBAIJANMeanwhile, Secretary of State Palasca signed an Energy Cooperation Agreement in Bucharest on March 12 with his Azeri counterpart, Natig Aliyev. The MEF highlighted the strategic importance of the Agreement for Romania's access to Caspian oil and gas. In an interview with Romanian newspaper Adevarul, Minister Aliyev stated the Azeri side will study different methods of supplying natural gas directly to Romania. "To supply gas, we need pipelines. We could also supply LNG, but this requires capacities that Azerbaijan does not have for now," he said, adding however that LNG should remain on the agenda and be part of ongoing bilateral discussions. Aliyev pointed out that South Stream will strengthen Gazprom's monopolistic power. He said he did not see Iran connected to Nabucco. Aliyev suggested that Azerbaijan is not only interested in supplying gas to Nabucco, but could be interested in participating as a partner in Nabucco and in the Pan European Oil Pipeline (PEOP) as well. (Note: PEOP is a Bosporus Bypass oil pipeline project that would connect the port of Constanta to Trieste in Italy.) Palasca told Romanian newspaper Evenimentul Zilei that, "should Azerbaijan want to participate in Nabucco through a commercial entity (i.e. SOCAR), Romania would give full support for its candidacy since Azerbaijan would bring long term natural gas supplies."

- 8. (C) ANXIETY RISING OVER SOUTH STREAM In the meeting with econoffs, State Secretary Palasca twice expressed concern over movements by Nabucco partner countries (Bulgaria, Hungary) to sign on to Gazprom's South Stream project. Palasca stressed that Romania stands by its position that energy security cannot be achieved by two pipelines drawing on the same source of gas, but rather from BUCHAREST 00000216 003 OF 004 diversifying sources of supply. Palasca urged continued USG support in pushing the governments of Bulgaria and Hungary, and the European Commission more broadly, to stay committed to Nabucco. On the positive side, Palasca felt that Bulgaria and Hungary's flirtation with South Stream may spur Turkey to a more active role on Nabucco. 9. (C) Palasca stated that the GOR clearly recognizes the pivotal role of Azerbaijan in realizing the pipeline and is looking for ways to nudge Baku toward a solid commitment both to export its own reserves and to facilitate transit of Turkmen and Kazakh gas. According to Palasca, his Ministry has recommended to the Cabinet that Romania actively increase its commercial ties with Azerbaijan. However, Palasca felt Romania could not advocate unilaterally for Azeri's state oil and gas company SOCAR to be added to the Nabucco consortium. Palasca said that existing consortium members have not formally discussed this possibility and SOCAR has reportedly not approached member countries to express interest in joining.

- 10. (C) IS LNG A SOLUTION?Meanwhile, the GOR is moving forward on the proposed LPG/LNG terminal at the port of Constanta. The Cabinet approved a memorandum recommending the GOR pursue the project on March 5, and Minister Vosganian signed a letter of support for a proposed USTDA-financed feasibility study on March 12. A U.S. consortium of gas suppliers and distributors led by ETG Global submitted a feasibility study grant application on February 15 (see reftel A), and a USTDA definitional mission has been scheduled for the week of April 14. State-owned natural gas producer Romgaz has been identified as the beneficiary of the study and will contribute by providing specialists and logistical assistance. 11. (C) One potential delaying factor for the study will be the lack of a defined role for the ETG/UGI group after the study's conclusion. The GOR understands that it will be the legal beneficiary of the study, and the likely partner, Romgaz, has so far been reluctant to commit to a relationship with the American study implementers. Palasca was likewise non-committal, saying that upon completion of the feasibility study Romania will decide which companies will be part of the project. He took note of econoff's clarification that the study must be conducted by a U.S. partner in order to receive USTDA financing, and that ETG/UGI Group's potential role as partner will depend on whether it can reach an agreement with Romgaz on participation in project implementation. In the absence of a U.S. partner, USTDA will not be involved.

- 12. (C) SOME FEAR BEING LEFT IN THE COLD While much of Romania's political elite remains committed to supply diversification as the best means of enhancing Romania's energy security, a significant minority have been vocal in their calls for improved relations with Moscow. One of the loudest dissenting voices has been Minister Vosganian, a stalwart of the PM's Liberal Party and a member of Romania's ethnic Armenian minority. Vosganian, the former Chairman of the Senate Budget Committee, assumed leadership of the combined Ministries of Economy and Finance in April 2007. While Vosganian initially sought a more active role as minister on the energy front (he traveled twice to Moscow and once to Baku in 2007), government insiders have said he has shown much more interest of late in budgetary matters, leaving international energy issues to State Secretary Palasca. (NB: Palasca has taken a thoughtful, professional approach to his portfolio. Interlocutors in both the Presidency and the PM's office have expressed confidence in his approach.) Most observers agree that Vosganian's combined portfolio is unwieldy and difficult for even the most skilled manager to coordinate ) and Vosganian is not widely considered a skilled manager.

13. (C)Still, Vosganian continues to advocate for stronger BUCHAREST 00000216 004 OF 004 ties with Moscow, and has publicly downplayed the fact that Romania pays among the highest prices for Russian gas imports in Europe. In a February 28 press conference on energy pricing, Vosganian sought to deflect criticism of growing domestic energy prices by juxtaposing Romania's import price (USD 370 per 1000 cubic meters) with the price the United Kingdom pays for imported LNG (reportedly USD 407 per 1000 cubic meters). He has also been a constant critic of President Basescu's more assertive stance towards Russia, often criticizing the President for standing in the way of better relations with Moscow. While Vosganian reportedly continues to be a behind-the-scenes critic of Nabucco, his public position has been that the project might provide Romania leverage to negotiate better import terms from Gazprom.

14. (C)The opposition Social Democrats (PSD) had remained largely silent on the issue of energy security until earlier this year, with criticism mainly limited to warnings by party leader Mircea Geoana that Basescu's approach toward Russia was unnecessarily bombastic (Basescu has famously declared Gazprom to be a more effective strategic tool for Russian than was the Red Army). Iulian Iancu, chair of the Chamber of Deputies' Industry and Services Committee and the PSD's leading light on energy, told econoffs in a recent meeting that he shares concerns that Russia is using its energy might to manipulate political events in the region. However, Gazprom's recent agreements with Bulgaria, Serbia and Hungary have spurred the PSD to more vocal criticism that Romania is being outmaneuvered and risks becoming "a blank spot" on the European energy map. The PSD's "Ovidiu Sincai" Social Democratic Institute went so far as torelease a report on March 10 criticizing President Basescu's declared "Washington-London-Bucharest" axis and suggesting a "Moscow-Bucharest" axis in its place.

- 15. (C) COMMENT With neighbors on their southern and western borders rushing to sign agreements with Gazprom this year, the leadership in Bucharest must be pondering the old adage that Romania's best neighbor is the Black Sea. President Basescu and Prime Minister Tariceanu, two men who rarely agree on anything, have remained steadfastly committed to an energy security strategy founded on pursuing alternate means of supply. However, Gazprom's recent public successes in the region, whether real or ephemeral, have raised the level of anxiety over whether Romania will be left out of the picture as new energy networks develop around it. The GOR has welcomed recent news of larger reserves in Azerbaijan (see reftel B) and views German partner RWE's new membership in the Nabucco consortium as a sign of the project's commercial potential. Having so far refused to be wooed by Gazprom's South Stream overtures, Bucharest is anxious for signs of progress on Nabucco and is doing its best to prod the process along. Still, GOR officials remain very sensitive to U.S. signals on the energy front. They will be watching us closely for any signs of a wavering USG commitment to the Southern Corridor strategy.

/ TAUBMAN

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